CAMEL Scores Stir Spirited Debate at MACUMA Meeting

CAMEL scores may be subjective and inconsistent, but publishing them would be an important step toward reform, State Employees’ Credit Union President/CEO Jim Blaine stressed during Monday’s Metropolitan Area Credit Union Management Association annual meeting in Rosslyn, Va.

Blaine debated attorney Richard Garabedian, partner at Washington-based law firm Luse Gorman Pomerenk & Schick, on the pros and cons of publishing the confidential scores before an audience of approximately 110 industry executives during MACUMA’s dinner meeting program.

Blaine replied to a question from the audience posed by Rusty Vellek, compliance officer at the $186 million Transportation FCU of Washington, D.C.

Vellek drew applause when he stated that the problem with CAMEL scores isn’t whether or not they should be disclosed, but the ratings themselves. In addition to questions about reliability or accuracy, CAMEL scores aren’t meaningful in and of themselves, he said.

CAMEL subjectivity came up more than once during the debate, and even Garabedian, who opposes CAMEL score disclosures, agreed that the scores are “a regulator’s opinion in regard to risk to the share insurance fund.”

In fact, Garabedian said, the subjectivity of the scores underscores the reason they should be kept confidential.

“They carry the weight of regulatory agency opinion,” he said, and added that in some cases, scores reflect a credit union’s past practices, rather than current financial condition.

The spirited discussion, which prompted lively audience participation, eventually arrived at a bottom line question: given that financial reports and key measures like net worth and delinquency ratios are available to the public, and CAMEL scores are subjective, should the NCUA to scrap them altogether?

No, Blaine said.

“We should not ignore the NCUA with impunity and say the ratings are worthless,” he said. Secrecy only serves to “protect what’s wrong with the system,” he added. If CAMEL scores are published, and examiner inconsistencies exposed, the quality of the scores will improve.

Garabedian pressed his point that making CAMEL scores public wouldn’t provide much value to consumers, who don’t understand the methodology behind them. And, during times of financial crisis, the scores could undermine confidence in the system and prompt a run on an institution, which could increase costs to insurance funds.

Blaine countered that making CAMEL scores public would help the NCUA enforce safety and soundness by applying peer pressure from credit union executives to maintain high standards.

SECU ignited the ongoing debate over the scores when the $25 billion credit union published its CAMEL score issued by its state regulator, the North Carolina Credit Union Division.

That prompted the NCUA to conduct separate exams of all state-chartered North Carolina credit unions in early 2012 because the federal regulator said its state counterpart violated the Federal Credit Union Act, and violated the trust the NCUA had in the state’s effective regulation.